Gramm-Leach-Biley Act Case Solution

The public was uneducated in how the process worked but seemed not to be bothered because it got them into the house. They don’t want a mortgage, they want a home. A home they can raise a family, build equity, build a life, have a sense of freedom. That “boom” market gave it to them. The lenders probably told them to just sign here for now and we’ll get your mortgage down to where you really want it and in a couple of years and we’ll figure out the rest. When you have no idea that the market would crash as it did, are you prepared? No, because who is thinking that your home is losing value, that people are going to lose their jobs or that the economy would turn into a recession. Not the banks or the public thought that. The perception was that the market was going to go up or stay steady, so the homeowners were going to be able to refinance and get rid of their current payment. People were going to make more money, they were going to get a raise in a couple years at their jobs and everything would be better. So when the homeowners refinanced their loan they would get a fixed rate mortgage for 30 years. But that never happened.

The dot-com bubble in 2000 was the start to the, still current, historically low interest rates – all thanks to the Federal Reserve. Since interest rates were so low, many Americans decided that now was the time to get the “American Dream” and buy houses, since the values were going up and mortgage and insurance rates were so low. By serially refinancing, people were quite literally treating their homes as a money bank, and not thinking twice of the equity they were loosing in the process, because they thought that the value would only go up, while their mortgages would decrease, and were blinded by the so called “American Dream”.

In the lead up to the current recession, when the real estate market began to fall, there were so many investors shorting stocks and securitized mortgage packages that were already falling, that the market simply fell further. There were no buyers at the bottom, and the professional investors made millions off of the losses of others. Beyond this, there was no real federal regulation for securitized mortgages, since there was no real way to gauge the mathematical risk of any given package. This allowed the investors to take advantage of the system and to short loans on real people’s homes. Once these securities were worthless, many of the homebuyer’s defaulted on their mortgages and were left penniless. No matter from which angle this crisis is looked at, the blame rests squarely with the managers who began the entire cycle, the ones who pursued the securitization of mortgages. Their incompetence not only led to the losses of Americans who have never invested in the stock market, but to losses for their shareholders.

Unfortunately, the mortgages would take a turn for the worst; thus, resulting in investment funds lost and the inability to repay the loans that they borrowed from the banks (Isidore, 2008). Left with nothing, the banks were forced to declare the loans as unrecoverable, reduce the bank’s reserve, and limit their ability to generate new loans (Isidore, 2008). These actions destroy the economy because both businesses and buyers need loans to pay for investment expenditures and finance consumption (Isidore, 2008). An early problem was “ mortgage-backed security”. According to AP Economics 19 edition, “ Mortgage- backed securities are bonds backed by mortgage payments”(Brue). In order to create mortgage- backed securities, lenders begin by creating mortgage loans (Brue). When they do, the lenders combine hundreds of loans into one and sell them off as bonds; basically selling the right to regain all future payments (Brue). In the end, banks receive an individual payment for the bond. Bond buyers recover the mortgage payments as the gain on the investment (Brue). As first, it seemed like a good decision on the bank’s party because it moved any future default risk on those mortgages to the buyer’s bond (Brue). Unfortunately, they fail to realize that they had lent the significant amount of money they got from investment funds to selling bonds (Brue). Moreover, the banks bought huge amounts of

After the free spirit of the 1920s, the Great Depression arrived. There’s so sole reason why America entered the worst economic downturn of the industrialized world. However, multiple reasons contributed their part. A lot of money was flowing in the stock market (aka Wall Street). More Americans were beginning to invest in the stock market for faster gains. But, when the stock market began to crash, people sold their stocks in companies. This caused the crash to be worst. The stock market crash did not just affect normal Americans trying new financial gains but, federal banks. Many banks made foreclosures on houses and foreclosed themselves. Americans also made withdrawals from the banks. Therefore banks cannot make loans to American citizens

The U.S. subprime mortgage crisis was a set of events that led to the 2008 financial crisis, characterized by a rise in subprime mortgage defaults and foreclosures. This paper seeks to explain the causes of the U.S. subprime mortgage crisis and how this has led to a generalized credit crisis in other financial sectors that ultimately affects the real economy. In recent decades, financial industry has developed quickly and various financial innovation techniques have been abused widely, which is the main cause of this international financial crisis. In addition, deregulation, loose monetary policies of the Federal Reserve, shadow banking system also play

The enormous amount of unsecured consumer debt created by this speculation left the stock market essentially off-balance. Many investors, caught up in the race to make a killing, invested their life savings, mortgaged their homes, and cashed in

Simply put, it all commenced within the United States housing market. In the years leading up to 2008, buying and selling mortgages became a very popular way for lenders to make money. While housing prices continued to increase, lenders found themselves in a win-win situation. If homeowners paid their mortgages, the lenders made money. If homeowners could not pay their mortgages, they would

In 2008, the housing market crashed and America fell into a recession. Many Americans lost their homes. Many investors lost large sums of money, and overall the economic recession hurt America as a whole. Today, we see that the stock market is more regulated than it was in 1929 with the Great Depression and 2008 with the Great Recession, but it is still not regulated as much as it previously was. In 1999, portions of the Banking Act of 1933, more commonly known as the the Glass-Stegall Act, were repealed. The repeal of the Glass-Stegall Act in 1999 sparked the Housing Crisis of 2005 and ultimately led to the Great Recession that America experienced in the 2000’s.

The housing crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.

In order to encourage people to buy more houses and boost the real estate market, the homebuilders, financial lenders, and the government created new financial instruments of calculation that were not researched properly. Lenders sold mortgages to investors that allowed the risk of default to be covered even though the mortgage was in a financial stretch for the borrower. Borrowers did not read the fine print and made decisions that they could not afford. The major banks Federal and otherwise, kept the interest rates low causing investors to take risks to get high returns in the short term, disregarding the long terms security of the whole process.

During the early 2000 's, the United States housing market experienced growth at an unprecedented rate, leading to historical highs in home ownership. This surge in home buying was the result of multiple illusory financial circumstances which reduced the apparent risk of both lending and receiving loans. However, in 2007, when the upward trend in home values could no longer continue and began to reverse itself, homeowners found themselves owing more than the value of their properties, a trend which lent itself to increased defaults and foreclosures, further reducing the value of homes in a vicious, self-perpetuating cycle. The 2008 crash of the near-$7-billion housing industry dragged down the entire U.S. economy, and by extension, the global economy, with it, therefore having a large part in triggering the global recession of 2008-2012.

Housing prices in the United States rose steadily after the World War II. Although some research indicated that the financial crisis started in the US housing market, the main cause of the financial crisis between 2007 and 2009 was actually the combination of housing bubble and credit boom. The banks created so much loan that pushed the housing price to the peak. As the bank lend out a huge amount of money, the level of individual debt also rose along with the housing price. Since the debt rose faster than people’s income, people were unable to repay their loan and bank found themselves were in danger. As this showed a signal for people, people withdrew money from the banks they considered as “safe” before, and increased the “haircuts” on repos and difficulties experienced by commercial paper issuers. This caused the short term funding market in the shadow banking system appeared a

The American economy is mostly built on credit. Credit can be used to start or expand a business, which can create a lot of jobs. Also, credit is used to buy a house or a car. However, credit got unchecked and out of control, banks were giving credit to mostly everybody without acknowledging the consequences. Thousands of people took out loan that they couldn’t afford, hoping that when they buy a house they can either flip the house or make profit, refinance, with low rates and with more equity. People became wealthier in a quickly pace. The brokers had many reasons why to sell you a house, they just took your words, and determination if you can afford the mortgage. They used their techniques to cut down sales prices, and made a mortgage package. These mortgage package were group with others mortgages and erased all personal responsibility of the loan, leading into a deficit and people not paying back their

Many Americans embraced the use of credit cards for their daily transactions as a result of the stability in the financial markets and could spend money in excess of their incomes due the excellent performance in the stock markets as well as other investments. They majorly relied on their investments to bridge or finance the cash gap and the financial infrastructure was perfect. Millions of investors in the US had borrowed money against their homes and the effects of the financial downturn severely hit the housing market. The ever rising value of the houses in the early years and the perceived stability in the mortgage backed securities led the banks and other lenders to believe that the risks in the prime loans could be contained and that the trend